Britain to keep up pressure on Libor reform

LONDON (Reuters) - New rules governing how market benchmarks like Libor are set will be reviewed and tightened if necessary to restore trust after rigging scandals, a UK financial regulator said.

The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

Britain has reformed how the London Interbank Offered Rate or Libor is run, appointing a new administrator, NYSE Euronext NYX.N, to replace the British Bankers’ Association which is being stripped of this role.

Three banks - RBS (RBS.L), Barclays (BARC.L) and UBS UBSN.VX - have been fined a total of $2.6 billion for manipulating Libor with other banks expected to be punished in coming months.

Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), said tough governance rules may need to be applied to other types of benchmarks, many of which are in London such as oil and gold.

“The key issue here is that restoring confidence and trust is not simply about Libor ... it’s by no means the only one capable of knocking market confidence,” Wheatley told an International Swaps and Derivatives Association conference on Thursday.

“And that raises the obvious question: do we hold all benchmarks to the same broad standards, or do we allow the reputation of some to climb, others to fall?” Wheatley said.

“The danger with the latter option, I think, is that you risk the integrity of an entire system.”

Administrators will be given a year to get it right.

“But once we’ve been able to review the extent of compliance by administrators ... we’ll look again at the principles. We’ll also take a position on whether they can be improved or made more effective,” Wheatley said.

GLOBAL REVIEW

Wheatley also co-chairs a global review at the Financial Stability Board on how to base Libor on actual market transactions rather than quotes from banks on rates they think they can borrow from each other.

The review will also look at how to shift to the new benchmark without disruption to existing contracts and the findings will be published by June next year.

The European Commission published a draft law to regulate benchmarks at the European level for the first time on Wednesday.

It stopped short of earlier plans for supervision of major benchmarks like Libor by the Paris-based European Securities and Markets Authority rather than by the FCA in London.

“This was a positive document, a useful document, and it’s encouraging to see the Commission using Libor reform as a broad template for benchmark regulation,” Wheatley said.